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description

This HBR Case Study includes both the case and the commentary. For teaching purposes, this reprint is also available in two other versions: case study-only, reprint R0710X, and commentary-only, R0710Z.

When new CEO Cheryl Tobin arrives at Hammond Aerospace, she picks up a faint scent of corruption. But if her predecessor broke the rules, her executive team isn't talking. Cautious about damaging reputations over nothing, she hesitates to make her concerns public. Is a private investigation warranted? Four experts comment on this fictional case study written by Joseph Finder, a best-selling author of corporate thrillers. Harry Brandon, an international business-intelligence specialist, helps firms get to the bottom of affairs like this one. Meticulous evaluation of documents and tactful tapping of insiders are crucial, he says, for determining whether laws have been violated. In a quarter of cases, there's no fire behind the smoke; in the rest, he finds flames. Christopher E. Kubasik and James B. Comey, of Lockheed Martin, offer Cheryl advice from the real-world aerospace industry: Go first to the vice president of ethics or, absent one, the folks who run the internal audit organization. Wherever that leads her, Cheryl's top goal should be to send a clear message that hints of wrongdoing will not be ignored. Eric A. Klein, a lawyer at Katten Muchin Rosenman who advises corporations and their boards, has a cardinal rule: Manage the process, not the crisis. He says Cheryl should find out how previous matters of ethics were handled at Hammond. She must also assess her legal responsibilities, weighing the potential costs and benefits of an inquiry. William J. Teuber, Jr., of EMC, says Cheryl should tap the wisdom of the board chairman, who has just recruited her. If an investigation is warranted, Teuber argues that external lawyers are best equipped for the job and that Cheryl should not keep digging for dirt on her own.

learning objective:

In this fictional case study, a new CEO suspects that the firm's high-level executives used bribes to obtain foreign business. She must decide whether to initiate an investigation. The reader will consider issues such as whether she should inform the board, whether she is legally required to launch an inquiry, and how to control damage to the company's reputation during an investigation.